Question of the Day (Updated): What's the average interest rate on a car loan for someone with bad credit?
Answer: 15.96% [Subprime: 501 - 600 credit score]
|Credit Tier (Credit Score)||Average New Car Loan Interest Rate||Average Used Car Loan Interest Rate|
|Super prime (781-850)||2.47%||3.61%|
|Deep subprime (300-500)||12.53%||19.87%|
- Give one example of an action that can cause a borrower to have “bad credit?"
- How does the interest rate affect the monthly payment on a car loan? Explain.
- Assume a borrower with bad credit took out a $20,000 car loan. Estimate what the total cost of the loan would be for a 60-month loan.
- If you want to know the answer, here's an auto loan calculator.
Behind the numbers (CarsDirect):
Let's look at how higher interest rates affect a car loan, using an example. Let's say you're buying a used car, and the loan is for $14,000 with a term of 60 months (five years). Check out how different auto loan interest rates influence the monthly payment and overall cost of the car:
|Credit Tier (Credit Score)||Interest Rate||Monthly Payment||Interest Paid||Total Cost|
|Super prime (781-850)||3.61%||$255.37||$1,322||$15,322|
|Deep subprime (300-500)||19.87%||$369.90||$8,194||$22,194|
Using the average used car loan interest rates from the first table, you can see that as credit scores drop and the interest rate increases, the total cost of financing goes up dramatically.
Go over the basics of credit scores with your students using the NGPF activity INTERACTIVE: FICO Credit Scores!
Want to extend this activity so students can calculate for themselves the cost of bad credit? Check out this NGPF Activity, Calculate: Impact of Credit Score on Loans